Private Media Group reports Q2 results – net sales up 9% and net income up 1.2 million euro year on year with new media sales gaining momentum

15 August, 2006 - BARCELONA, Spain /PR Newswire/ -- Private Media Group Inc.(NASDAQ: PRVT) a worldwide leader in premium-quality adult entertainment products, services and mobile and Internet content, today announced its results for the three-month period ending June 30, 2006.

Compared to the same period last year, the Company reported an increase in sales of 0.6 million euro to 7.7 million euro for the three-month period ended June 30, 2006. The Company reported net income of 0.5 million euro for the three-month period compared to a net loss of 0.6 million euro for the same period last year. The increase in net income was primarily due to increased operating profit as a result of increased high margin new media sales.

New Media sales: broadcasting increased 2.3 million euro to 3.0 million euro primarily as a result of our new strategy for new media. Wireless increased 143% to 0.4 million euro. The increase in wireless sales was the result of our content being available with additional operators. Internet sales was 1.0 million euro.

DVD sales decreased 1.5 million euro to 2.7 million euro. The decrease in DVD sales was primarily attributable to an industry wide decrease in DVD consumer prices and sales. The industry wide drop in DVD is the result of offline sales/rental competing with online sales/rental. Magazine sales decreased 0.3 million euro to 0.6 million euro as a result of lower quantities sold through certain retail channels during the three-month period.

Going forward, the Company expects Internet, wireless and broadcasting sales to increase (see discussion under Outlook below).

For the three months ended June 30, 2006, the Company achieved a gross profit of 3.7 million euro, or 48% of net sales, compared to 2.9 million euro, or 41% of net sales for the same period last year. The increase in gross profit as a percentage of sales was primarily the result of increased high margin sales from wireless and broadcasting platforms. Going forward, we expect gross profit as a percentage of sales to continue to increase.

Selling, general and administrative expenses were 3.4 million euro for the period compared to 3.6 million euro year-on-year, a decrease of 0.2 million euro.

Operating profit. The Company reported an operating profit of 0.3 million euro for the three months ended June 30, 2006 compared to an operating loss of 0.7 million euro for the same period last year. The increase in operating profit was primarily due to increased gross profit as a result of increased high margin new media sales.

Commenting on some important factors relating to the business going forward, Private Media Group, Inc., CFO, Johan Gillborg stated: “During the past twelve months we have seen evidence of an emerging new source of significant future profits in the IPTV driven True Video on Demand (TVOD¹) market in Europe. Revenues from our first distributor on this type of platform have increased steadily during 2005 and the growth in our revenues has been in line with the subscriber growth on this new VOD platform. We have reason to believe that our revenue will continue to grow in line with the forecasted subscriber growth on this new VOD platform and subsequently we expect a contribution to operating profit of more than EUR 0.5 million for 2006 from this new distributor only. Furthermore, we are currently in the process of contracting with additional major TVOD platforms in the most important territories in Europe, however, we are currently unable to determine the future potential contribution to operating profit from these platforms, but we are certain that this new media platform will replace the more traditional media platforms such as DVD and that we will take a leading position in our industry in this new market.

As of June 30, 2006 Private`s content for wireless was available to mobile consumers via 52 operators in 24 countries, of which 26 operators went live since September 2005. We expect to go live with 17 additional operators in the third quarter and going forward we will add even more operators. Currently we are reaching more than 404 million mobile phone subscribers via their operator menus. Since most of the new operators have just started and the window from start-up to reporting of actual sales is approximately six months, we are currently unable to determine what our potential revenue will be from the marketing of our content to the mobile adult content market. However, we believe that adult content, as it has done with other new technologies, will help to drive the sale of content on mobile devices(²) and that the creation of our dedicated mobile content department will have a significant impact on revenues and operating profit going forward.

In May 2006, the Company entered into a five-year Pay-TV content licensing agreement for the territory of German Speaking Europe with Erotic Media AG. Under the terms of the agreement, Private Media Group will receive 6 million euro, including 3 million euro in 2006 and 1.5 million euro in 2007, in exchange for Erotic Media’s immediate and future access to a specified quantity of titles in Private’s content library. This agreement proves the value of investing in top quality content and we will continue to explore this type of arrangements within our strategy for Pay-TV.

In November 2005, we signed a five-year agreement with Playboy TV International to merge our two adult pay-TV channels, Private Gold and Spice Platinum in Europe thereby consolidating market leadership in the region. The new channel is called Private Spice and was launched in April 2006. There is little overlap between the two channels and subsequently the new channel will significantly increase the distribution in the region. We expect this new channel to start having an impact on profits during the second half of 2006.

In the third quarter of 2005, we reached an agreement with a member of the Portland Television Group of companies for the launch of a new Private channel in the UK. This refreshing and dynamic new channel was launched May 31, 2006 and replaced the Private Blue channel, which was aired in the UK from 2000. The new channel will be available as a pay-per-view channel primarily via the BSkyB Digital Satellite platform. The BSkyB platform currently carries more than 7.4 million subscribers. We expect this new channel to start having an impact on profits during the second half of 2006.

During the second quarter of 2005, we signed an agreement with Playboy TV Latin America for the operation and distribution of Private branded TV channels in Latin America. With this new agreement we are significantly increasing our broadcasting presence in this region and towards the end of 2006 we expect to start seeing an impact on our revenues from the region.

We have seen a turnaround in traffic to our Internet sites and in the second quarter we experienced a new record of 2,607 million unique visits. Driving the growth in traffic is the development of our affiliate program Private Cash. Although our affiliate program is still in its infancy, it has proved that it works and as the number of webmasters signed up grows we expect traffic and sales to increase.

In the second quarter we contracted with a third-party in order to employ DivX technology on our sites. DivX is among the world`s most popular video technologies and has been downloaded over 200 million times. DivX enables consumers to both stream and/or download to own and play highly-compressed, high-quality video content on their PCs and TV sets. As of August 2006 visitors to the "Private-to-Own" section of our online shop can download to own videos and we expect this new feature to generate growth going forward.

In the fourth quarter of 2005, Private opened a subsidiary in Hong Kong to respond to an ever-increasing local demand in Asia for the Private brand, including the licensing of content for broadcast TV, VOD online, IPTV and mobile as well as brand licensing for clubs and retail outlets. Immediate interest in Private is principally stemming from Korea, China, Japan and Hong Kong. The whole consumer culture in this region is ripe for superior adult-oriented products with a strong brand identity and we believe that sales from this region will start having an impact in the second half of 2006.

During 2005 we increased our investment in our library of photographs and videos by 69% compared to the same period in 2004 and subsequently we will release more new proprietary movie titles in 2006 compared to 2005(³). We expect the increase of new movie releases in 2006 to result in increased margins on DVD sales since additional new releases available for sale increases the average sales price per unit”, Mr. Gillborg concluded.

Financial Highlights

NOTES TO THE EDITORS:

Footnotes
¹True Video On Demand - (TVOD) - is the ideal VOD service where individual users get immediate responses when interacting with the VOD system. With TVOD, the user can not only order the program online, but be able to do any VCR or DVD-like commands on the VOD system with the same quick response time as when working a VCR or DVD.
²Juniper Research estimates in its white paper Adult to Mobile: Personal Services – Second Edition (February 2005) that the global mobile adult content market will more than triple over the next five years, to nearly US$2.1 billion by 2009.
³The window from investment in a movie title to release is typically six to eight months.

About Private Media Group
With its 40 year track record, NASDAQ listed Private Media Group is a world leading adult lifestyle company which distributes a wide range of erotic and semi-erotic multimedia content over several platforms, including wireless and broadcasting technologies, narrow and broadband Internet, DVD and Magazines. Private Media Group also licenses its Private and silver girls trademarks internationally for a range of luxury consumer products and owns the worldwide rights to the largest archive of high quality adult content in the world, which it distributes all over Europe, North America, Latin America, South Africa, New Zealand, Australia and Asia.

Disclaimer
This release contains, in addition to historical information, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which reflect the Company`s current judgments of those issues. However, because those statements are forward-looking and apply to future events, they are subject to such risks and uncertainties, which could lead to results materially different than anticipated by the Company.

For further information please contact:
Johan Gillborg
Chief Financial Officer
Private Media Group
Tel +34 93 590 70 70
johan.gillborg@private.com

SOURCE: Private Media Group, Inc.